I have just remortgaged my house with NAB and obtained a line of credit mortgage so that I can access the equity. Apparently this system can be used as an investment type mortgage – I have been told it is interest only anyway. I am a bit confused by this, as someone else told me a line of credit mortgage would confuse my accountant when it came to claiming back money on interest payments. I wondered if anyone out there could explain how a line of credit mortgage would work for an investment property – should I be looking at a simple interest only mortgage if I decide to rent out my house?
Also can anyone out there with one of these facilities give me advice on the best way to use them.
Sarah
Will use figures as example.
Say your house is valued at $200K. You owe $100K on mortgage. The LOC will now give you access to full borrowings of $160K.
If you were going to use any of the $60K you just got released to invest in IPs, make sure you get the bank to ‘split’ the loan, so there are then two accounts. One for $100K, and one for $60K which you use for investment purposes. This keeps the interest payments totally separate, and will make it easy for your accountant to calc investment interest.
Then, you put all spare money you have into the $100K loan, including all savings etc. If you need to ‘dip’ into your savings, you just reborrow it from this loan. While the money is there, you are saving interest, and potentially reducing the amount/time of your loan.
Cheers
MelI understand you’re confusion, its a bit hard at first. i have done exactly the same as you. firstly the person who told you it would confuse your accountant, do they invest? do they have a LOC account set up, probably not.
What i have found out before setting it up myself is, keep all receipts, and i mean everything you think you may claim. start a filing system, one for the equity in your house and the other for the investment property, keep these seperate so the accountant is not confused.
for some idea on what you can claim
go tohttp://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm&page=1#P19_325
this will give you some idea what you can claim.
ensure you have a good accountant. this can not be stressed enough, without a good team around you, your accountant, rather than knowing about real estate investment tax will fob you off with excuses. they do this because they dont know and its too hard for them to find out.
The equity in your house that you are using, only money that you have used to purchase a property is tax deductable, all other stuff like day to day living is not, hence keeping all your receipts.
If you are still confused, speak to your accountant, he/she should know what is required
good luck
shaun
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